RCN Sale Paves Way For Spend Hike


The nation’s largest overbuilder, RCN,
agreed to a buyout from Boston-based private equity giant
ABRY Partners last week, a move that may have been
spurred by plans to beef up its high-end commercial
communications business.

ABRY agreed last Friday to a deal worth about $1.2 billion
in cash and assumed debt. As part of the transaction,
RCN shareholders will receive $15 in cash for every share
they hold, a 43% premium to its average price over the past
30 trading days, and a 22% premium to its closing price of
$12.26 per share on March 4. ABRY also will assume about
$737 million in debt. RCN’s stock price, predictably, rose
23% ($2.89) to $15.15 last Friday.

Th e deal is expected to close in the second half of 2010.
Miller Tabak media analyst David Joyce valued the deal
at about 5 times 2010 estimated cash flow. He had valued
RCN at between $22 and $27 per share.

“I think they could have gotten a higher price,” Joyce
said, but management likely took ABRY’s offer as a way to
go private and obtain more flexibility to invest in the fiber-optic transport side of its business.

RCN has the right to shop for a better deal in the next
40 days, according to the agreement, but Joyce said that
he would be surprised if a new deal is made.

After a period of aggressive expansion, RCN filed for
Chapter 11 bankruptcy protection in 2004, emerging with
a stronger balance sheet in 2005 and a focused approach
around a handful of strategic markets. They include New
York City; Washington, D.C.; Chicago; Boston; Philadelphia
and the Lehigh Valley in Pennsylvania.

In 2006, RCN hired Waller Capital and Blackstone
Group to look for buyers, but scrapped those plans after
bids came in too low.

The company had about 430,000 residential and small/
medium business customers as of Sept. 30.

Revenue and cash flow for the first nine months of the year
were about $573 million and $164 million, respectively.

Joyce said he expected ABRY to split the company into two
groups: residential and RCN Metro, the high-capacity fiber
optic transport business for large enterprise customers.

ABRY is an investor in Atlantic Broadband, a cable operator
with about 285,000 customers in Florida, Maryland/
Delaware, South Carolina and Central Pennsylvania, and
was a past investor in WideOpenWest and Avalon Cable.

RCN’s advisers for the deal included Deutsche Bank Securities
and Waller Capital Partners. SunTrust Robinson
Humphrey was exclusive fi nancial adviser to ABRY.

A warming-up of cable transactions could be good news
for Bresnan Communications’ backer Providence Equity
Partners, which is exploring a possible sale of its majority
stake in that company. (An article on those plans last
week incorrectly referred to the potential seller as Providence
Equity Group.)


RCN Corp.

CEO: Peter Aquino
Residential and Small/Medium Business
Subscribers: 430,000
2009 Operating Cash Flow (est.): $219.8 million
2009 Free Cash Flow (est.): $44 million
Shares Outstanding: 36.2 million
RCN and analyst reports